Pubdate: Tue, 08 Mar 2016
Source: Arkansas Democrat-Gazette (Little Rock, AR)
Copyright: 2016 the Associated Press
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Author: Steve Karnowski, the Associated Press
WALL STREET VETERANS BET ON FUTURE OF MARIJUANA EXCHANGE
(AP) - Legal marijuana is a $5 billion business in the U.S., and
Steve Janjic figured he'd get a piece of it. With a commodity
exchange. For a product that can't be transported across state lines.
Not to worry. "It's never easy to pioneer an industry," said Janjic,
a former foreign exchange executive at Tullett Prebon LLC who has put
$1 million into Amercanex Corp., an electronic cannabis-trading
platform that handles sales of about 100 to 150 pounds of marijuana a week.
That's not exactly blockbuster in a country with an estimated 20
million marijuana consumers. It may not be too bad, though, in the
case of a young exchange for a psychoactive substance transitioning
to legitimate, or sort of legitimate, considering it's illegal under
federal law. Janjic and other Wall Street veterans backing Amercanex
take the very long view.
While only four states and the District of Columbia have sanctioned
marijuana for recreational use, Nevada may join them after a November
vote. In 23 states, the drug is allowed for medicinal purposes. Polls
show a majority of Americans believe it should be as legal as beer,
giving Amercanex high hopes.
"I look at this as an early Nymex," said Richard Schaeffer, a former
chairman of the New York Mercantile Exchange. "I look for this to
become a very substantial matching engine bringing buyers and sellers
together."
Schaeffer, 63, is Amercanex's chairman, and Janjic, 49, is chief
executive officer and co-founder. Others from the financial world
involved include futures trader Timothy Petrone, a member of Nymex
and the Chicago Board of Trade, former Nymex board member David
Greenberg and James McNally, who's been a member of Nymex, the
Commodities Exchange and the Hong Kong Futures Exchange.
Amercanex isn't alone in betting there will be serious money to be
made trading the flowers and leaves of the cannabis plant someday.
Sohum Shah, a 26-year-old with a degree from the University of
Arizona, started the Cannabis Commodities Exchange three months
before Amercanex got off the ground.
Cannabis Commodities Exchange operates only in Colorado, which in
2012 became the first state to vote to make recreational marijuana
legal. Amercanex is in Colorado and California, the first to OK
marijuana for medicinal use, and Janjic said there are expansion plans.
The hurdles are sizable. For an exchange to fully function, a
commodity has to have standardized specifications and some regulatory
oversight, as products from corn to metals do, so everyone can be
assured of exactly what they're buying and selling, said Dale
Rosenthal, who teaches finance at the University of Illinois at
Chicago. "There's not a clear reference price" for raw marijuana
either, he said, another sticking point.
Marijuana comes in a very wide range of quality and potency and
price; the legal stuff hasn't been around long enough for any
national benchmarks. Traditional spot and futures markets for
commodities like wheat or crude oil are linked to a single, widely
accepted variety with a minimum quality standard.
Amercanex buyers aren't operating blind, Janjic said, because the
exchange sends what's sold on its platform to a laboratory for
evaluation and shares the results.
But buyers and sellers have to be in the same state. The U.S.
government regulates interstate commerce, and selling or possessing
marijuana are federal crimes. So, then, is sending it across borders
- - and Amercanex is an exchange for spot trades of physical purchases,
not paper-only futures or options contracts. Right now, federal law
is "the risk in this game," Janjic said.
In Colorado, purveyors were required until January 2015 to cultivate
what they sold, and most still do. "The only way that I think you can
really be successful is by growing your own," said Bruce Nassau, the
CEO of Tru Cannabis, which has five stores. "If you're buying from a
wholesaler, you're [in trouble]."
In Alaska and Oregon, merchants are allowed to use their own raw
materials, but Washington legalized in 2014 with a law forbidding
retailers from doing so. "In a system like that, exchanges become
more useful," said Adam Orens, the founding partner of the Marijuana
Policy Group.
Amercanex started in July 2014 with 20,000 seats, though it has
retired about 8,000. The seats began selling for $2,500 each and are
now going for $10,000, Janjic said; 7,000 are are still available.
Dixie Brands Inc., a Denver-based maker of
tetrahydrocannabinol-infused products, bought a seat last year, and
has an equity stake. Amercanex will help distribute its goods more
efficiently, CEO Tripp Keber said. "You're starting to see some other
players come into the market, which I think is a strong endorsement."
Last year, legal marijuana sales rose 17 percent to $5.4 billion,
according to a report from ArcView Market Research and New Frontier,
and if every state had legitimatized marijuana the sum could have
been $36.8 billion. California, the most populous state, might start
boosting the numbers soon.
Campaigns are collecting signatures for November ballot measures.
"California is very important," Janjic said. "It's shaping up to be
the largest marketplace in the world."
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MAP posted-by: Jay Bergstrom